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  • Writer's pictureBlaise Brewer

What is an asset-based loan?

Updated: Jan 13, 2022

What is Asset-based Lending?

Asset-based lending refers to a loan that is secured by an asset. In other words, in asset-based lending, the loan granted by the lender is collateralized with an asset (or assets) of the borrower.

Asset-based lenders will advance funds based on an agreed percentage of the secured assets' value. The percentage is generally 70% to 80% of eligible receivables and 50 percent of finished inventory.

Understanding Asset-based Lending

In asset-based lending, hard money lenders use your collateral to help you acquire additional cash to fund further real estate projects.

Hard money lenders can get cash in your hand more quickly than traditional lenders or typical financial institutions and the process offers more flexibility and requires less paperwork. A hard money lender will look at accounts receivable, equipment, and inventory to determine your loan along with the equity in your current real estate assets. Hard money lenders will usually have higher interest rates than traditional banks because the real estate itself is not liquid and you are not borrowing on your personal income,

Advantages of Asset-based Lending

The following are advantages to the borrower:

  • Easier and faster to obtain than unsecured loans and lines of credit

  • Generally include fewer or have freedom from covenants that add flexibility

  • Require less documentation and paperwork

  • Investors with strong assets but uneven cash flow may access capital

  • Generally comes with a lower interest rate compared to other funding options

The following are advantages for the lender:

  • Asset-based loans are less risky as it is collateralized with an asset (or assets); and

  • If the borrower defaults on the loan, the lender can obtain the assets that were used to secure the loan and liquidate them to settle the amount outstanding.

Funding capabilities of asset-based hard money lenders

While the vast majority of hard money lenders provide equity-based lending for residential real estate, some specialized lenders will also offer loans on other property types such as industrial, commercial, and land. Asset-based hard money lenders are capable of funding a wide variety of loans such as:

  • Investment property loans

  • Fix and flip loans

  • Distressed property loans

  • Bridge loans

  • Purchase loans

  • Cash-out and refinance loans

  • Estate, probate and trust loans

  • Other loans secured by real estate

Asset-Based Lending Rates

Asset-based lending rates are higher than long-term rates available from traditional lenders. You can expect asset-based lending rates to be in the range of 8% to 11% interest depending on the loan to value (LTV) ratio, lender, the strength of the borrower, property type and location, and many other factors of the loan. While the interest rates are higher (but generally lower compared to other funding options), asset-based loans are intended for short-term use only. The convenience of more flexible lending criteria as well as the speed of approval and funding make up for the interest rate.

Types of Assets You Can Use as Collateral

Asset-based lending relies on collateral, but that doesn’t mean you need physical collateral like real estate or land. In fact, there are several types of collateral you can utilize to secure loans and raise the borrowing base. However, keep in mind that lenders will find some types of assets more valuable than others. Lenders tend to prefer assets with more liquidity because they provide added security with minimal risk. Nonetheless, you can generally utilize illiquid assets like land and real estate, especially if you’re looking to add security with other assets in the mix.

  • Real Estate

  • Accounts Receivable or Invoices

  • Purchase Orders

  • Inventory

  • Stocks and bonds

  • Certain types of equipment

If you are not sure which collateral you can use to qualify for asset-based lending, talk to your lender about the assets you have available and learn which would make the most sense based on your needs.


While being excited about making a big purchase, getting the financing figured out can take all of the fun out of the whole experience. When you use asset-based loans you can secure your financing much simpler and quicker than other options.

With just a short application process you can be on your way to making your dreams a reality.


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